Update 821 — Closing Economic Arguments:
Record and Vision Presented by Candidates
Following Donald Trump’s controversial and divisive speech on Sunday at Madison Square Garden and Kamala Harris’s rousing final appeal last night at the National Mall, voters have now heard the candidates’ closing arguments in the 2024 campaign. Their cases on economic policy present a greater contrast than what we have seen in many years.
Today, we reprise their competing records and visions on the most salient domestic economic policy issues, from the cost of living to tax policy, from the labor market to consumer debt. It is our hope that voters will assess these soberly, bearing in mind not the invective and appeals to fear but their own material interest and which candidate will serve them best.
Best,
Dana
Less than a week out from Election Day, the economy remains the top issue on the minds of American voters as they consider whether former President Donald Trump or Vice President Kamala Harris would serve as better and more reliable stewards of the economy over the next four years.
Trump had led President Joe Biden by 6 points on voter trust in handling the economy in July. Harris has significantly closed this gap since she became the Democratic nominee in August.
As Harris released and touted her economic agenda in August and September, voters began to trust her on the economy more than Trump. But since then, voter trust in Harris has slightly wavered and Trump has gained more of an advantage. Earlier this month, a poll conducted by the Financial Times and the University of Michigan Ross School of Business found that 44 percent of registered voters trust Trump to handle the economy while 43 percent prefer Harris.
The candidates’ records and proposals make the choice clear. The Biden-Harris Administration’s strong economic performance and the components that Harris’s economic agenda laid out so far promote affordability, fairness, growth and resilience, while Trump’s economic record and proposals would only make life harder for everyday Americans.
Affordability and the Cost of Living
Inflation has been a central issue throughout the 2024 presidential campaign. The Federal Reserve’s preferred measure of inflation – the personal consumption expenditures (PCE) price index – remained relatively low and stable, generally hovering around 1.5 to 2.0 percent from 2015 to 2019. Following the onset of the COVID-19 pandemic, inflation began rising significantly due to supply chain disruptions and then increased demand as the economy reopened.
After President Biden took office, inflation continued to rise, peaking at roughly seven percent in mid-2022. Amidst this inflation, some large companies used inflation caused by factors beyond their control as cover to increase their markups beyond what was necessary to compensate for the increased costs they faced and increased their profit margins without consumers noticing. As supply chain disruptions eased and the Fed hiked interest rates, inflation has come down and is now at 2.2 percent and approaching the Fed’s two percent target. Though inflation has eased, prices have not gone down. Americans are reminded of this every time they pay for food, rent, gas, and their regular expenses.
To address pandemic-era corporate profiteering at the expense of American families, Harris has proposed advancing the first-ever federal ban on price gouging on food and groceries, setting clear rules of the road to make clear that big corporations can not unfairly exploit consumers to run up excessive profits on food and groceries, and securing new authority for the Federal Trade Commission (FTC) and state attorneys general to investigate and impose strict new penalties on companies that break the rules.
On the other hand, Trump’s proposed mass deportations, tariffs, and erosion of the Fed’s political independence could increase inflation to as high as 6.0 to 9.3 percent in 2026, according to estimates by the Peterson Institute for International Economics.
Spotlight on Rent
Shelter costs, especially rent, have been a hot-button issue when comparing the economy under the Biden-Harris Administration to that of Trump. The average overall rent prices were at $1,130 under Trump, while they are at $1,360 under Biden according to the most recent data. That said, another aspect to consider is how much rent has increased under each administration. As per the CPI, rent prices increased by 13.6 percent during the entire Trump Administration, while it has increased by 21.5 percent thus far during the Biden-Harris Administration. The surge in rent took off in large part due to the pandemic-era spike in housing demand, coupled with overall inflation.
In terms of tackling rent growth, the proposals most likely to help in the matter are those that would increase the supply of rental housing. Trump said that his administration would reduce zoning restrictions and slash regulations on housing construction, but his campaign has not gone into further detail. Harris has proposed $40 billion to encourage local governments to streamline regulations and cut down on the time it takes for builders to start and complete their projects for affordable housing. Both candidates have also promised to lease at least some federal lands for housing construction. In terms of other proposals, Trump has stated repeatedly that reducing immigration will reduce demand and increase housing supply, but economists have been heavily skeptical that it would have much of a positive impact. Harris has come out in favor of rent control, though economists are still largely against that idea.
Tax Policy
The Trump administration passed expensive tax cuts that largely benefited wealthy individuals and corporations. There is little evidence that the expensive tax cut significantly benefited the economy at the macro or micro level.
The Harris and Trump tax plans released thus far – which we discuss in greater detail here – would add to federal deficits and the national debt, though the Penn Wharton Budget Model projects a much smaller deficit impact of $2 trillion on a dynamic basis for Harris’ as compared to $4.1 trillion for Trump’s.
The winner of this year’s presidential election will have a clear role in shaping the future of our tax code, deciding if we trend towards a code that focuses on fairness and raising revenue for direct investment in the American people or continue on a path that rewards the wealthy and corporations without meaningfully benefiting the economy or trickling down to lower-income groups.
Consumer Debt
Household debt has risen considerably over the last eight years. While it climbed steadily under Trump’s presidency, the growth in household debt has accelerated during the Biden-Harris Administration. Household debt has grown by over 22 percent under the Biden-Harris Administration, reaching a record $17.8 trillion in the second quarter of 2023. The vast majority of this debt is mortgage debt, but a growing percentage of it is credit card debt. During the Biden-Harris Administration, credit card debt has increased by 25.4 percent, standing at $6,501 on average for all consumers with a credit rating. Another often overlooked category of household debt is auto loan debt: auto loan debt has risen consistently over the last 10 years, only dipping slightly in the second quarter of 2020 thanks to the pandemic. It now stands at $1.626 trillion, with an increasing share of car owners having negative equity on their vehicles.
That said, it is not all doom and gloom. Thanks to the Biden-Harris Administration’s student debt relief efforts, $153 billion of debt has been eliminated for 4.3 million student loan borrowers. Additionally, household debt has fallen to 97 percent of disposable income as of the end of March, its lowest level barring the pandemic since 2001, indicating that this household debt is not as much of a burden as the gross total would make you believe.
There are a few reasons that household debt has increased as much as it has. For one, inflation has eaten into Americans’ earnings, especially in the years it took for wages to catch up. This means that the savings afforded to many Americans during the pandemic have dried up and Americans have needed to turn to credit in order to boost their consumption. Additionally, high interest rates have translated to higher borrowing costs, making everything from credit card debt to mortgage debt more expensive. While inflation is down and interest rates have been cut, it is likely going to take a while for most Americans to pay down their debt barring relief.
Not surprisingly, Trump and Harris have offered markedly different solutions to America’s rising household debt. Donald Trump has proposed a temporary cap of 10 percent on credit card rates, but his campaign has not provided any details on how this would be achieved. Trump has also proposed making auto loan interest tax deductible, provided that those cars are domestically built, though some have criticized this proposal as likely having an incremental benefit to all but the highest income borrowers with the biggest loans. On student loans, Trump has promised to gut the Biden-Harris Administration’s existing efforts and kill any further attempt to provide relief. Trump has also promised that interest rates will be cut, which would on paper reduce borrowing costs across the board, but long-term rates are ultimately controlled by the market, which is affected by a multitude of factors outside of the control of either Trump or the Fed.
As part of her platform, Vice President Harris has promised to provide down payment support for new homeowners, which could help with mortgage debt but whose overall effect on the housing market has garnered mixed opinions from economists. Harris has voiced support for government relief for old medical debts, whereas Trump would likely increase the medical debt burden if he were to overturn the Affordable Care Act. While the Biden-Harris Administration has fought hard to provide student debt relief, on the campaign trail Harris only occasionally addressed the topic. That said, if elected president, Harris would likely continue the efforts started under the current administration.
The Labor Market
While inflation remains the foremost economic issue on the minds of Americans, the labor market is also a major factor in America’s economic future. Job growth was strong over the first three years of Trump’s presidency, with seven million jobs being added to the economy from the first month of the Trump administration to February 2020. Over that period, the unemployment rate fell from 4.7 to 3.5 percent. Following the onset of the COVID-19 pandemic, job creation contracted by 22 million jobs from February to April 2020 and unemployment spiked at 14.8 percent in April 2020.
After Biden took office in January 2021, the economy rebounded strongly with roughly 16 million jobs being added to the economy since then. The unemployment rate fell from 6.4 percent to historic lows of 3.4 percent in January and April of last year but has since risen to the still relatively low 4.2 percent level.
Moderation in job growth and the slight increase in unemployment over recent months has come as interest rates remain elevated in the Fed’s effort to bring inflation down. But the Fed has begun lowering rates from their peak and has projected that it will cut rates from the current 4.75 to 5.0 percent level to 3.4 percent by the end of 2025. As interest rates ease, labor market conditions will likely loosen.
Labor market conditions over the past roughly eight years have not been largely driven by administration policy, but largely by global trends and the Fed’s monetary policy response. In a second term, Trump could threaten the independence of the Federal Reserve. While in office, Trump said that he had the right to fire Powell and tweeted “…who is our bigger enemy, Jay Powel (sic) or Chairman Xi?” In February, Trump baselessly accused Powell of considering rate hikes geared to help Democrats in the coming election, even as Powell has ignored calls by Congressional Democrats to lower rates over the past year. Politically influenced monetary policy decisions can undermine confidence in American markets. The Biden-Harris Administration has not interfered with the Fed’s independence and Harris will almost certainly continue this long-standing tradition of respect.
The Big Picture
Trump inherited a strong economy from the Obama Administration. The Biden-Harris Administration oversaw a robust economic recovery. Harris would likely build on this success as she builds what her campaign has dubbed an “opportunity economy” in which every American has the opportunity to succeed. Trump’s proposals for a second term would bring prices up and could be unpredictably destabilizing by undermining confidence in American markets. The choice is clear – Americans deserve a strong, fair, and resilient economy over the next four years and Harris is prepared to deliver.